Thursday, November 16, 2006

The Long Tail: The New Economics of Culture and Commerce forecasts the demise of the hits-driven culture which defined the twentieth century, predicting instead that the emerging digital economy of the twenty-first century will herald a new entertainments industry relying just as much on ‘misses’, niche markets and mass-customisation.

See this video here for the launch party for the book in conjunction with Wired and Flavourpil.

Anderson argues that the twentieth century saw an entertainments industry physically constrained by the economics of supply-and-demand. Retailers would only carry content which they knew would generate demand sufficient enough to cover costs. Roughly translated, this meant that your local HMV would only have ordered as many copies of an album as they believed would sell within your local area. As a result, the twentieth century saw the ‘tyranny of the hit’ and a society of people who watched the same films, listened to the same music and read the same books. Anderson anticipates that as the entertainments industry moves into the digital world, the individual will become the focus as opposed to the mass market. Online retailers have the capacity to supply products that are in low demand or have low sales volume, though which collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters. Companies such as Amazon, NetFlix, iTunes and Rhapsody are at the forefront of this emerging trend, catering to individual preferences and tastes.

These are his three rules for ‘The New Entertainment Economy’:

1. “Make Everything Available”: offer anything and everything online on the off-chance that it will find a buyer. For the film industry, this could mean offering up previously underserved genres, such as Bollywood films, documentaries, foreign films, and independent flicks.

2. “Cut the price in half. Now lower it”: iTunes singles currently retail at $0.99 (79p in the UK). While the labels argue this price is too low, and fear that lowering prices further will drive consumers away from record stores, potentially leading to a massive CD retailer rebellion, consumers would often argue that $0.99 is too high when they could just use a peer-to-peer network to get their tracks for free. Anderson argues that if online retailers lowered their prices, consumers would actually buy more, meaning the industry wouldn’t suffer as much damage as it currently believes it would. He suggests that the entertainments industry as a whole could entice consumers down the Long Tail by lowering prices.

3. “Help me find it”: Online retailers need initially to attract consumers with hits and then guide them down the Long Tail using the ‘Other customers have bought…/Other users recommend…’ format, just as Amazon and iTunes do at the moment. You might therefore begin by buying Britney Spears’ Greatest Hits. A recommendation would encourage you to listen to Pink, which might lead you to No Doubt, which might lead on to some obscure 1980s Southern Californian punk outfit. A Britney fan will have been guided down the Long Tail and in the process discovered they have tastes which diverge radically from the mainstream.

If the entertainments industry follows Anderson’s advice, the future will see the provision of entertainment in abundance, endless choice supplied by digital and online retailers and opportunities for the consumer to discover something which he might never have found by wandering into town on a Saturday afternoon.

The author recently gave a talk about his book and hosted a book signing in Second Life with the help of Millions of Us . See what he had to say by watching the video.

Anderson’s book has got the Beam Team thinking about how the Long Tail theory might be applied to our booze brands. There are the obvious constraints relating to the physical distribution of alcohol; we can’t sell alcohol online in the same way Amazon shifts CDs, books and DVDs or in the same way iTunes allows us to download music. However, we can learn an important lesson from The Long Tail: If you create a supply, you might just find you have a demand.

We might find there are opportunities to draw consumers’ attention to these little-known brands and create a few ‘Global Microbrands’ in the process, especially if we consider that in the future, consumers might become used to always being offered such a wise choice in other areas of their lives. We could start guiding them down the Long Tail, attempting to broaden their tastes beyond the ‘hit’ global mega-brands.

For the economic and statistical theory of the Long Tail, and more basic facts, hit the Wikipedia page.